A question of honour: Hester's £1m bonus enrages Westminster

RBS boss Stephen Hester's £1 million bonus has sparked outrage among union leaders, the opposition and even a government minister.

Liberal Democrat Foreign Office minister Jeremy Browne pointed out Mr Hester's £1.2 million salary meant he takes just three days to earn more than a soldier serving in Afghanistan for a year.

He has been awarded an additional £963,000 as a reflection of the "significant contribution he has made towards rebuilding RBS in 2011", the government's stakeholding company UK Financial Investments said.

Treasury sources pointed out the bonus was significantly less than the £2 million bonus he received for his work in 2010, however.

RBS group chairman Sir Philip Hampton said Mr Hester's pay was "strongly geared to the recovery of RBS" and pointed out he had "played no part" in the bank's collapse.

The priority is to re-shape a business that was far too big and far too risky, reducing "legacy losses whilst improving performance in the group's strong core businesses.

"It is a very large, complex and challenging corporate restructuring task. A safer and more valuable RBS is in the interests of our customers, shareholders and the UK economy and we are progressing well to towards this goal under the leadership of Stephen Hester."

Mr Hester, who as the head of a bank owned by the government was described by Mr Browne as "effectively a public servant", is facing calls for him to abandon his bonus nonetheless.

"There's a question of honour," Mr Browne said on BBC1's Question Time last night.

"Even if there's a contractual opportunity for him to have a bonus it doesn't mean he has to accept it."

Shadow Treasury minister Chris Leslie pointed out it that previous ministerial claims that the RBS board was contractually bound for many years over bonuses were false.

"The board decides bonuses on an annual basis - and the biggest shareholder at the bank is the government," he said.

"Nobody doubts that Stephen Hester has done some important things at RBS, but what this award shows is David Cameron’s promises about reining-in excessive bonuses at state-owned banks or using shareholder power have proved to be utterly worthless."

At the start of this year the prime minister said big financial rewards for individuals in charge of failing organisations "make people's blood boil".

RBS registered a £2 billion profit in its most recent trading period, but is pushing through 3,500 job cuts to focus on its core business and shrink its investment bank side.

The Robin Hood Tax campaign's spokesperson David Hillman said it was "beyond belief" that the government was letting "City fat cats off the hook" after news earlier this week that the economy began shrinking again in the final three months of 2011.

Unite's national officer David Fleming asked: "What planet does Stephen Hester and his banking chums live on?"

He said taking Mr Hester's bonus from taxpayers was "utterly disgusting and offensive to every worker in this country".

Mr Hester succeeded Sir Fred Goodwin as head of RBS in November 2008, after the high street bank was bailed out by Gordon Brown's government. This month has already seen pressure for Sir Fred to be stripped of his knighthood.

Eighty-two per cent of RBS shares are currently held by the taxpayer. It continues to represent a loss to the government's balance sheet, currently sitting at £26 billion from the taxpayer's initial investment of £45.5 billion at the height of the financial crisis.